It was another sluggish day for the market. The Nifty seems to have spent all its near-term energy in breaking out of the previous range and now seems a bit sapped. Left to itself, this could just be a bout of consolidation and profit-booking. However, if some external trigger were to manifest itself, the picture could change. Global markets turned a bit cautious on Thursday after Alan Greenspan warned of a "dramatic correction" in the Chinese market. While everyone is aware of the bubble that is building in China with the retail frenzy for stocks, it is difficult to predict when exactly it will burst. The fear is that China could trigger that overdue correction in global markets, but too many people are predicting that. The market does not always readily oblige such consensus.
While the breadth was not good on Thursday, mid-caps did not do too badly. In fact, many mid-caps that fell on Wednesday actually bounced back. The punters will not get shaken off so easily now that they have tasted blood. If a slightly deeper cut were to come in though from any global scare, many of the recently inducted F&O stocks could be in for a drubbing. The recent bout of volatility comes at a time when a very long F&O series, laden with heavy positions, is drawing to a close. Technically, this would not be a good time to get an external shock, as that could have a magnified impact.
The money markets seem to brooding about the possibility of a cash reserve ratio hike from the Reserve Bank of India. The Rs 20,000 crore slated to come into the banking system next week is the genesis of this concern. The market fears the RBI may want to squeeze out this excess liquidity. Bank stocks have seemed a bit moody over the last day or two, perhaps on account of this apprehension. For the market, the weekly close will be important. It may set the tone for the futures expiry week ahead.
(The writer is Executive Editor, CNBC-TV18)